• Downturn in Malaysia manufacturing activities eases in September
• Global manufacturing PMI stays at 54.1 in September
• Supply constraints are still limiting growth in industry
• Headline PMIs fell in many parts of the world
• Disruption to industry from Delta outbreaks in emerging Asia eased

Downturn in Malaysia manufacturing activities eases in September

The headline IHS Markit Malaysia manufacturing purchasing managers' Index (PMI), a composite single-figure indicator of manufacturing performance, rose to 48.1 in September from 43.4 in August, showing downturn in Malaysian manufacturing sector eases in September.

Businesses signalled that the Malaysian manufacturing sector continued to be disrupted by the latest wave of COVID-19 cases in September, albeit to a lesser extent than in August. Pandemic fighting measures meant that both output volumes and new order inflows continued to be scaled back in September, though rates of decline both eased to the softest in four months as some of these restrictions were eased. Foreign demand for Malaysian manufactured goods also moderated, but at a softer pace than total new orders. The reduction in new export orders was only mild, and eased to the softest since May. Malaysian manufacturers reported that employment fell slightly for the second month in a row in September as businesses indicated difficulties in taking on foreign workers amid strict border restrictions. The lack of productive capacity, coupled with sustained material shortages contributed to a survey record increase in backlogs of work. Goods producers continued to report significant supply chain delays during September. Supplier delivery times lengthened at a robust rate once again as containment measures restricted supply of freight capacity and raw materials, exacerbating existing delays and shortages. Despite restrictions on the economy and ongoing supply disruption, manufacturers were increasingly confident that output would rise over the coming year, citing hopes that the end of the pandemic would encourage new projects to begin and aid a broad-based recovery in market demand. As a result, the degree of optimism reached the highest since April.

Outlook. COVID-19 cases continued to disrupt manufacturing in Malaysia last month, but the latest survey by IHS Markit showed that things may be looking up for the sector. According to IHS Markit’s COVID-19 Containment Index, virus-fighting restrictions have been rolled back in Malaysia to their lowest since April, facilitating production and helping ease the downturn in demand. Vaccination progress has improved and virus cases were on a downward trend through September, helping drive renewed optimism about the economic outlook and driving business confidence to the highest since April. The survey data therefore add to signs that the economy has turned a corner at the end of the third quarter following a steep downturn, and the improvements in the survey’s future expectations and order book indicators point to growth picking up in coming months. The historical relationship between the PMI and official statistics suggests that the recent downturn in GDP will have eased markedly at the end of 3Q21, and the rise in the latest PMI bodes well for improving momentum in coming months. Meanwhile, gradual relaxation of containment measures for some states during the month and year-ago low base effects bolstered the export growth last month. Exports expanded at a faster pace by 18.4% yoy in Aug (Jul: +5.0%). The stronger growth in overall exports was mainly attributable to better growth in shipments for many products, especially manufactured goods. E&E exports registered a rebound and expanded by +6.8% yoy (Jul: -12.1%). The risk is still tilted to the upside as the exports will continue to post positive growth. In the upcoming months, the reopening of more economic sectors is expected to gradually result in a better performance for the country’s external trade.

Global manufacturing PMI stays at 54.1 in September

The global manufacturing PMI sent a positive signal in September with rough stability in the survey after a number of months in which the output index declined sharply. However, the survey still points to ongoing supply constraints weighing on the sector. The J.P. Morgan Global Manufacturing PMI posted 54.1 in September, unchanged from August's six-month low. The PMI has now signalled expansion for 15 successive months. Data broken down by sector showed that growth continued across the consumer, intermediate and investment goods industries. PMI readings ticked higher for the intermediate goods sector, was unchanged for consumer goods and edged lower in the investment goods category. The latter retained its position at the top of the growth rankings, however. Manufacturing production and new orders both rose for the fifteenth successive month in September, and to slightly better extents than during the prior survey month. New export business also continued to expand, although the rate of growth was unchanged from August's seven-month low. Efforts to raise production further were stymied by severe supply-chain and logistic disruptions. The past six months have seen supplier lead times lengthen to the greatest extents in the survey history. Although global manufacturing employment rose for the eleventh consecutive month, the rate of increase was the weakest since February. Supply disruptions and material shortages also fed through to higher prices in September.

Source: BIMB Securities Research - 4 Oct 2021